Aug 11, 2018 / 07:08

Vietnam faces challenges to lure foreign indirect investment in H2

The Hanoitimes - After receiving strong foreign indirect investment (FII) capital in the first half of the year, it is forecast that it will be hard for Vietnam to maintain the positive inflow due to external risks.

Vietnam saw FII the main driver of foreign capital attraction in the first half of the year as foreign investors have poured billions of dollars into the offerings by Vietnamese enterprises.
 
A residential project of Vinhomes in Ho Chi Minh City
A residential project of Vinhomes in Ho Chi Minh City
The most prominent case in the period was an initial equity offering of Vinhomes JSC, the real estate arm of conglomerate Vingroup JSC. The US$1.35 billion deal, which was Vietnam’s biggest ever issue, attracted a slew of overseas investors such as Singapore’s sovereign wealth fund GIC, Avanda, Capital International, Capital Research, JP Morgan Asset Management, Mirea Assets, and Waddell and Reed, Dragon Capital, VinaCapital, and Korea Investment Management.
Another typical case was foreign investors paying over US$1.3 billion to acquire more than 257 million shares of Techcombank, or a 22 percent stake. Of the total, Techcombank raised some VND21 trillion (US$933.33 million) through its offering of 164.07 million ordinary shares to institutional investors, at VND128,000 (US$5.69) a piece.
In addition, a series of mergers and acquisitions (M&A) also took place on the real estate market in the first half of the year, helping Vietnam lure US$2.36 billion from foreign investors in the period.
According to the General Statistics Office, although the stock market experienced strong volatility in the first six months of this year, FII capital inflow increased sharply by 82.4 percent, reaching US$4.1 billion.
External risks
According to analysts, steady economic growth and political stability were considered advantages that make Vietnam an attractive investment destination in the first half of the year.
However, the global financial markets have changed dramatically after the US’s Federal Reserve (Fed) implied there will be two more interest rate hikes in 2018 and the US-China trade conflict accelerates. The risks have raised concerns over capital outflows from emerging countries, including Vietnam.
Tran Toan Thang from the National Center for Socioeconomic Information and Forecast stated that the US dollar is expected to pick up even further because of the bright economic outlook of the US and countries that are depreciating their currencies.
The upward trend of the dollar in most markets, together with fears of sagging economic growth in many developing nations, have prompted global capital flows to move from emerging countries, including Vietnam, to the US. A series of currencies have sharply fallen against the dollar as investors stepped up the sale of stocks and bonds to obtain the greenback.
Besides the rising trend of the greenback, the US’s tax reform bill has also contributed to capital flows back to the US.
Thang noted that corporate income tax in the US, which is also imposed on profits generated overseas, has dropped sharply to 21 percent. This will make US firms operating in Vietnam reconsider their strategies and potentially return to their home country instead of expanding their business operations.
The tax cuts may result in some countries acting to keep US firms on their soil, affecting the competitiveness of Vietnam’s investment environment. This is evidenced by China’s decision to exempt US firms from paying taxes to prevent them from taking profits out of China.
Besides, FII inflow will be also affected negatively as many expected deals such as the offerings by Genco 3, Binh Son Petrochemical, PVOil or BIDV are unlikely to take place in the near future.
The negative changes will thus obviously cause FII to be no longer the main driver of the country’s foreign capital attraction in the second half of this year.